Contracting for California climate disclosure

Disclaimer

Please note that California’s climate disclosure laws and implementing regulations are actively evolving. The California Air Resources Board (CARB) continues to issue guidance, interpretations, and updates to the Climate Corporate Data Accountability Act SB 253 (CCDAA) and the Climate-Related Financial Risk Act SB 261 (CRFRA).

This guidance reflects the state of the law and regulatory guidance as of January 2026. You should verify current requirements, deadlines, and technical specifications by consulting the latest CARB guidance and official rulemaking materials before taking action. Consider engaging legal counsel to ensure your approach reflects the most current regulatory landscape.

Key takeaways

• CARB’s regulations under CCDAA drive forward California’s climate disclosure requirements amid CRFRA enforcement pause; monitor updates closely.
• Use contracts and supplier policies to secure best-practice data access, quality, and confidentiality. Be ambitious, but tailor obligations to counterparties’ size, emissions role and regulatory status to foster cooperation without overburdening smaller entities, as required for Scope 3 under Greenhouse Gas Protocol.
• Document methodologies, uncertainties and verification status to meet legal disclosure requirements under Greenhouse Gas Protocol and ISSB/IFRS, ensuring transparency and defensibility. 
• Monitor CARB and statutory updates closely ahead of 2026 implementation to adapt contracts, policies and reporting, minimizing compliance gaps and enforcement risks.

California’s climate disclosure laws and CARB’s latest guidance

Overview

California’s Climate Corporate Data Accountability Act (CCDAA) (Health and Safety Code § 38532) and Climate-Related Financial Risk Act (CRFRA) (Health and Safety Code § 38533) require large companies doing business in California to make annual or biennial climate-related disclosures. The CCDAA requires the California Air Resources Board (CARB) to develop and adopt regulations that largely dictate the program’s requirements and implementation. CARB released proposed versions of the regulations to implement the CCDAA and the CRFRA on December 9, 2025, published minor updates to the proposed regulations on December 23, 2025 and scheduled a hearing on the proposal on February 26, 2026. The proposed regulations focus mainly on the technical aspects of the legislation regarding applicability, deadlines, and the process for setting and communicating annual fees. The proposal does not address substantive reporting requirements, which CARB addresses in guidance it periodically posts on its website.

Key statutory requirements:

• CCDAA: Companies with over 1 billion dollars in annual revenue doing business in California must disclose Scope 1 and 2 emissions annually (starting 2026), and Scope 3 emissions (starting 2027). Disclosures must be made in conformance with the Greenhouse Gas Protocol standards and guidance, including the Greenhouse Gas Protocol Corporate Accounting and Reporting Standard and the Greenhouse Gas Protocol Corporate Value Chain (Scope 3) Accounting and Reporting Standard.

The scopes are defined as:

“Scope 1 emissions” means all direct greenhouse gas emissions that stem from sources that a reporting entity owns or directly controls, regardless of location, including, but not limited to, fuel combustion activities.

“Scope 2 emissions” means indirect greenhouse gas emissions from consumed electricity, steam, heating, or cooling purchased or acquired by a reporting entity, regardless of location.

“Scope 3 emissions” means indirect upstream and downstream greenhouse gas emissions, other than scope 2 emissions, from sources that the reporting entity does not own or directly control and may include, but are not limited to, purchased goods and services, business travel, employee commutes, and processing and use of sold products.

• CRFRA: Companies with over 500 million dollars in annual revenue doing business in California must publish biennial climate-related financial risk reports, aligned with either the Task Force on Climate-related Financial Disclosures (TCFD) or ISSB under IFRS. While the statute allows for either framework, there is an implicit favoring of ISSB standards as the market evolves.

Reporting deadline: By statute, companies must report Scope 1 and 2 emissions in some form in 2026. CARB has proposed a deadline of August 10 and unofficially dropped the assurance requirement for 2026. The precise format is still under development, but CARB has released a draft reporting template for Scope 1 and 2 emissions. For the climate-related financial risk report, by statute, companies must make their reports publicly available by January 1, 2026, but CARB recently announced that it would not enforce that deadline pending the outcome of litigation challenging the CRFRA. (The litigation is also challenging the CCDAA, but CARB has not indicated any delay in enforcing its proposed deadline for Scope 1 and 2 emissions of August 10, 2026.)

Enforcement: The actual date of CARB enforcement is unknown but will not be before a hearing before the Ninth Circuit Court of Appeals scheduled for January 9, 2026.

Primary sources: Always consult the latest official texts (Health and Safety Code § 38532, § 38533), CARB’s evolving guidance, and referenced standards (Greenhouse Gas Protocol, ISSB/IFRS).

Intended audience and implementation

This guide enables organizations to:

• navigate California’s climate disclosure laws, including the Climate Corporate Data Accountability Act (CCDAA) and the Climate-Related Financial Risk Act (CRFRA), in light of evolving guidance from the California Air Resources Board (CARB)
• identify whether they are likely in scope (including revenue thresholds and “doing business in California”) and understand why classification matters for compliance and drafting decisions
• use contracts to support emissions and climate-risk disclosure obligations through practical clauses on data access, information provision, and cooperation.

This guide is for:

• in-house counsel, legal teams, and external lawyers
• policy drafters and compliance officers
• procurement and supply chain professionals.

Implementation: Early adoption mitigates transition risks from regulatory changes and legal exposure by building resilient operations, securing high-quality emissions data and demonstrating leadership ahead of deadlines.

Drafting new contract language:

• amending existing contracts
• updating internal governance documents (for example, supplier codes, board charters)
• revising supplier policies to cascade obligations.

Organizations should consider updating supplier policies alongside contracts to cascade obligations effectively downstream.

Regulatory context and CARB’s role

CARB’s evolving role:

• Required to develop, implement, and update regulations.
• Issues periodic guidance and voluntary best practices.
• Will clarify the required reporting form and assurance standards in future rulemakings.

Current status:

• Companies must prepare for 2026 reporting, but should expect further regulatory updates.
• Alignment with the Greenhouse Gas Protocol is a requirement of the law.

Identify your regulatory status

Classification is essential for compliance and contract drafting:

• Reporting Entity (CCDAA): Partnership, LLC, corporation, or similar entity with over 1 billion dollars in revenue that does business in California. Applicability is proposed to be determined based on lesser of the entity’s revenue in its two prior fiscal years and not regulated by the California Department of Insurance
• Covered Entity (CRFRA): As above, but with over 500 million dollars in revenue. 

Doing business in California:

Under CARB’s proposed regulations “doing business in California” means actively engaging in any transaction for the purpose of financial or pecuniary gain or profit and meeting either of the following criteria: 

1. The taxpayer is organized or commercially domiciled in California.
2. Sales in California exceed the lesser of 500,000 dollars or 25 percent of the taxpayer’s total sales.

Exemptions: CARB is currently proposing to exempt the following types of entities:

• federal, state and local government entities, and companies that are majority-owned by government entities
• tax-exempt non-profit or charitable organizations
• a business entity whose only business within California consists of wholesale electricity transactions
• entities regulated by the California Department of Insurance 
• entities whose only business in California is the presence of teleworking employees.

Foreign companies are only subject if they have US subsidiaries doing business in California and meet the applicable revenue thresholds.

Why this matters:

Only entities meeting these thresholds are directly subject to CCDAA/CRFRA. Contractual obligations should be tailored accordingly.

Practical contractual solutions for emissions and climate risk disclosure

General approach:

Organizations should act quickly and not limit their approach to minimum statutory compliance.

Do not overburden small suppliers: Only impose direct CCDAA/CRFRA compliance obligations on counterparties who themselves meet statutory thresholds or are critical to your Scope 3 emissions. For others, use flexible clauses focused on data access, cooperation, and best efforts.

Supply chain and Scope 3: contractual and policy approaches

Scope 3 reporting presents significant challenges, and large companies may cast a wide net to all others they do business with in order to gather all necessary information and protect themselves. This can result in requests for information from a broad array of suppliers and partners, even those not directly subject to the law.

Creative contractual solutions:

• information sharing agreements that specify the type, frequency, and format of data to be provided
• data access protocols that allow for secure, confidential sharing of emissions data
• provisions for the use of industry averages or proxy data where Primary Data is unavailable, as permitted by the Greenhouse Gas Protocol.

Note: For critical suppliers or those with significant emissions, consider contractually requiring use of Greenhouse Gas Protocol calculation tools and sector-specific guidance.

Confidentiality, data quality, and methodological uncertainty

Confidentiality:

Scope 3, Category 1 data may be proprietary. Use confidentiality clauses to protect sensitive information, while allowing for regulatory disclosure.

Watchouts:

• Data quality: The Greenhouse Gas Protocol and ISSB/IFRS require prioritizing Primary Data, but Secondary Data may be necessary.
• Methodological uncertainty: Emission factors (for example, EPA AP-42) are averages and may not reflect actual emissions; document assumptions and limitations.
• Verification: Prioritize verified data where possible, but recognize that full verification may not be feasible for all Scope 3 categories.

Internal governance and policy recommendations

Some obligations are best addressed in internal governance documents:

• Board-level oversight: Assign responsibility for climate disclosure compliance to a board committee or designated executive.
• Scenario analysis and risk management: Encourage adoption of climate scenario analysis and integration of climate risk into enterprise risk management, as per ISSB/IFRS, TCFD, and CARB guidance.

Recommended internal governance actions:

• Establish a board-level Sustainability and Compliance Committee responsible for overseeing CCDAA and CRFRA compliance.
• Update board committee charters to explicitly reference climate disclosure oversight.
• Require board approval for significant contracts with material climate implications through internal policies rather than external contractual terms.

Terms used in this guide

Greenhouse Gas Protocol: Greenhouse Gas Protocol standards and guidance, including the Greenhouse Gas Protocol Corporate Accounting and Reporting Standard and the Greenhouse Gas Protocol Corporate Value Chain (Scope 3) Accounting and Reporting Standard developed by the World Resources Institute and the World Business Council for Sustainable Development.

ISSB: International Sustainability Standards Board.

IFRS: International Financial Reporting Standards for sustainability disclosures.

TCFD: Task Force on Climate-related Financial Disclosures.

Primary Data: direct activity data from owned or controlled sources. 

Secondary Data: industry averages or proxies used where primary data is unavailable.